Results of Egypt's first free election in six decades will emerge Thursday, with Islamist parties expecting a majority in parliament, as the ruling military painted a dire picture of the economy any government will inherit.

Islamist success at the polls in Egypt, the most populous Arab nation, would reinforce a trend in North Africa, where moderate Islamists now lead governments in Morocco and post-uprising Tunisia after election wins in the last two months.

Parliament, whose exact makeup will be clear only after Egypt's staggered voting process ends in January, may challenge the power of the generals who took over in February after a popular uprising toppled Hosni Mubarak, an ex-air force chief.

The army council, under growing pressure to make way for civilian rule, has said it will keep powers to pick or fire a cabinet. But the head of the Muslim Brotherhood's party said this week the majority in parliament should form a government.

We tried everyone, why not try Sharia (Islamic law) once? asked Ramadan Abdel Fattah, 48, a bearded Egyptian civil servant who had voted for Islamists in Cairo.

In an alarming revelation hours ahead of partial first-round election results, a senior army official said foreign reserves would plunge to $15 billion (9.54 billion pounds) by the end of January, down from the $22 billion reported by the central bank in October, with money pouring out of Egypt.

Mahmoud Nasr, financial assistant to army chief Field Marshal Mohamed Hussein Tantawi, told a news briefing that a widening budget deficit might force a review of costly subsidies, especially on petrol, to save money.

The economic crunch has forced the Egyptian pound to its lowest level in nearly seven years after tourism and foreign investment collapsed in the turmoil since Mubarak's overthrow, with fewer visitors to the pharaonic sites on the Nile and foreign investors selling up and staying away.

The world is closely watching the election, keen for stability in Egypt, which has a peace treaty with Israel, owns the Suez Canal linking Europe and Asia, and which in Mubarak's time was an ally in countering Islamist militants in the region.

Washington and its European allies have urged the generals to step aside swiftly and make way for civilian rule.

GAINS FOR ISLAMISTS

Western powers are coming to accept that the advent of democracy in the Arab world may bring Islamists to power, but they also worry that Islamist rule in Egypt might erode social freedoms and threaten Cairo's 1979 peace pact with Israel.

The Muslim Brotherhood, Egypt's oldest and best-organised Islamist group, believes its new Freedom and Justice Party (FJP) is on course to secure about 40 percent of seats allocated to party lists after the first stage of voting this week, which passed off peacefully, albeit with many irregularities.

FJP officials have said the party is also leading the race for individual seats that account for a third of the total in the poll, which is the first free election since army officers ousted the king in 1952.

Al-Nour Party, one of several newly formed ultra-conservative Salafi Islamist groups, said Thursday that it expected to pick up 20 percent of assembly seats overall.

Officials were due to announce first-stage election results for individual seats at 7 p.m. (5 p.m. British time), but not those for party-list seats, which will be made public in January.

For the first time in Egypt we don't see a political intention by the state to forge the elections, said Magdy Abdel Halim, coordinator of an EU-backed group of election monitors.

In general the election took place in a reasonably fair atmosphere, he told a news conference. It had a number of violations, but they don't affect its legitimacy.

Egypt's April 6 youth movement, a prime mover in the revolt against Mubarak, said an Islamist win should not cause concern.

No one should worry about the victory of one list or political current. This is democracy and this great nation will not allow anyone to exploit it again, its Facebook page said.

If the FJP and Nour secure the number of seats they expect, they could combine to form a solid majority bloc, although it is not certain the Brotherhood would want such an alliance.

Senior FJP official Essam el-Erian said before the vote that

Salafis, who had kept a low profile and shunned politics during Mubarak's 30-year rule, would be a burden for any coalition.

The FJP might seek other partners, such as the liberal Wafd or the moderate Islamist Wasat Party, set up by ex-Brotherhood members in 1996, although only licensed after Mubarak's fall.

The liberal multi-party Egyptian Bloc has said it is on track to secure about a fifth of votes for party lists.

PERILS OF DEMOCRACY

Some Egyptians fear the Muslim Brotherhood might try to impose Islamic curbs on a tourism-dependent country whose 80 million people include a 10 percent Coptic Christian minority.

Ali Khafagi, the leader of the FJP's youth committee, dismissed such concerns, saying the Brotherhood's goal was to end corruption and start reform and economic development.

Only a mad group would try to ban alcohol or force women to wear headscarves, Khafagi told Reuters.

The priority of the Brotherhood, which gained trust by aiding the poor under Mubarak, is likely to be economic growth to ease poverty and convince voters they are fit to govern.

They are going to have to deliver something. The bread-and-butter issues will be their focus, said Shadi Hamid, director of research at the Brookings Doha Center.

Essam Sharaf's outgoing government quit during protests against army rule last month in which 42 people were killed, most near Cairo's Tahrir Square, hub of the anti-Mubarak revolt.

Kamal al-Ganzouri, asked by the army to form a national salvation government, aims to complete the task in the next day or two, but acknowledged Wednesday that five presidential candidates had turned down invitations to join his cabinet.

Ganzouri might take the finance portfolio himself, the website of the independent Al-Masry Al-Youm daily reported.

Protesters who returned to Tahrir last month, angered by the military's apparent reluctance to cede power, say the generals should step aside now, instead of appointing a man of the past like Ganzouri, 78, who was a premier for Mubarak in the 1990s.

Mohamed Taha, 46, an accountant who supports the liberal Egyptian Bloc, said the election showed that the young revolutionaries had failed to present a viable program.

Their revolution was stolen and they are stuck searching for who stole it, he said.

(Additional reporting by Yasmine Saleh, Shaimaa Fayed, Maha El Dayan, Tom Perry and Tom Pfeiffer; Writing by Alistair Lyon, editing by Peter Millership)